There have been numerous ways to raise funds with blockchain and cryptocurrency. Polkadot has come up with a new solution, known as initial parachain offerings. It is somewhat akin to IPOs, but also completely different in many ways.
Over the years, numerous efforts have been launched to facilitate crowdfunding with blockchain technology.
Ranging from ICOs to STOs and even IEOs, it remains to be seen which will be the more successful option.
The Purpose of Initial Parachain Offerings
While this “debate” continues, Polkadot has come plan another potential solution
Known as initial parachain offerings, it is a new crowdfunding mechanism that can help disrupt the traditional IPO model.
Given how Polkadot positions itself as a protocol or protocols focused on interoperability, a parachain idea makes some sense.
Every parachain will act as a sovereign layer-one blockchain under the overarching Polkadot ecosystem.
For both developers and users, parachains will provide benefits in terms of ability plus optimization.
Through Polkadot, parachains can freely communicate with one another, all while retaining their independent state.
Every team exploring initial parachain offerings will need to acquire a slot through permissionless auctions.
If everything goes according to plan, Polkadot will have 100 slots available for this specific purpose.
This also indicates not everyone can organize initial parachain offerings, as the spots will remain limited.
For existing Dot holders, this will give them an option to issue loans in order to projects exploring this new crowdfunding mechanism.
Assuming a project can secure enough contributions, loans are returned to be able to contributors at the end of the parachain lease period.
The novel nature of this approach will also raise some questions along the way.
For instance, a team exploring initial parachain offerings will need to convince the community of its worth. That may prove rather difficult, which is a good thing.
That doesn’t mean this approach by Polkadot will be successful in the long run.
All of the other methods – ICO, IEO, STO : will remain available for teams who may not necessarily value transparency,
Addtitonally, there may not be sufficient Dot stakeholders for you to back new projects after a while.
There are only so many tokens to be contributed during these online auctions, with most holders probably not even bothering to participate.